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Building schools for future - recovering bid costs

On 5 July 2010 Michael Gove, the Secretary of State for Education, cancelled a significant portion of the Building Schools for Future (BSF) programme, the Labour Government's ambitious 20-year schools building scheme. Whilst projects that have reached financial close will still go ahead, some 735 planned projects have now been cancelled.

Traditionally, many contractors had been willing to risk the often high cost of bidding for BSF work because of the potentially significant future stream of work the BSF programme promised. However, as the Government has now cancelled many of the anticipated future BSF projects, contractors are looking to recover their wasted costs.

Express provisions of most tender documentation and case law prohibit the recovery of abortive bid costs before financial close. However, the extent of recovery depends upon the actual wording of the tender and scheme documentation and the stage a given scheme has reached.

Government policy may also be a basis for claiming a discretionary payment. In his 1997 review of PFI for the Treasury, Sir Malcolm Bates concluded that 'When a decision is made not to proceed with a project and that decision is not related to the viability of tenders received, contractors bidding costs should be refunded'. The Department for Health's 2007 policy framework for claiming such payments on cancelled schemes used Bates as a starting point and drew evidence from all departments. However, there is little evidence at this stage that such discretionary payments for cancelled BSF works will be made.